global graphic paper outlook - forest products industry events · the industry since 2009 •...
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Global Graphic Paper OutlookWinners and losers of our de‐globalizing world
Alejandro MataSenior Economist, European Forest Products
RISI European ConferenceAmsterdam – March 2017
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Alejandro Mata
• Bachelor’s degree in Engineering, MBA degree earned in 2007
• Worked in business and market intelligence functions for one of Europe’s leading paper producers
• Has been analyzing and forecasting the industry since 2009
• Author of the Paper Trader Europe, Paper Packaging Monitor Europe, the European Graphic 5‐Year and 15‐Year Forecasts and the Packaging Paper 5‐Year and 15‐Year Forecasts
Economist, European Forest Products
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De‐globalization
Change merely for the sake of change is not wise…
But is needed in order to progress
“It is not the strongest of the species that survive, nor the most intelligent,
but the one most responsive to change.” ‐ Darwin
Protectionism Uncertainty
How is the graphics industry impacted?
Who are the winners and losers?
How will things will continue to change?
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Newsprint24
Printing & Writing102
Tissue35
Cartonboard / Other92
Containerboard 156
Global Paper and Board Demand409 Million Tonnes
Forecast Change2016-2018
Newsprint -4.0%
Printing & Writing -1.2%
Tissue +3.5%
Containerboard +3.0%
Cartonboard +2.0%
5
Graphic Paper Demand Forecast for 2016‐18 Shows Slow Decline, but Varies by RegionThousand Tonnes, Percent per Year
Global ‐6,420 (‐1.7%)
67 (0.9%)
‐3,035 (‐4.0%)
‐679 (‐0.4%)
23 (0.3%)
2 (0.0%)
‐88 (‐1.7%)
‐2,435 (‐3.8%)
‐275 (‐1.3%)
Three‐year total growth in tonnes(Three‐year average % change)
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6
Newsprint and Coated Grades Will Be the Most Impacted Globally
24
660
1,457
1,480
2,798
0 2,000
UWF
Umec
Cmec
CWF
Newsprint-4.0%
-4.0%
-2.0%
-1.9%
0.0%0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
2010 2011 2012 2013 2014 2015 2016 2017* 2018*
Newsprint DemandNorth America Europe Asia Latin America RoW
-3.5%**
-2.5%***-5.7%**
-5.0%***-7.4%**
-6.9%***
* Forecast ** CAGR 10-16 *** CAGR 16-18
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7
24
660
1,457
1,480
2,798
0 2,000
UWF
Umec
Cmec
CWF
Newsprint-4.0%
-4.0%
-2.0%
-1.9%
0.0%0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
2010 2011 2012 2013 2014 2015 2016 2017* 2018*
Coated Woodfree DemandNorth America Europe Asia Latin America RoW
* Forecast ** CAGR 10-16 *** CAGR 16-18
-0.2%**-1.2%***
-3.0%**-3.6%***
-2.6%**
-2.3%***
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Global Coated Woodfree Trade Flows Are Changing
8
Coated Mechanical Demand Concentrated on Mature Markets
24
660
1,457
1,480
2,798
0 2,000
UWF
Umec
Cmec
CWF
Newsprint-4.0%
-4.0%
-2.0%
-1.9%
0.0%0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
2010 2011 2012 2013 2014 2015 2016 2017* 2018*
Coated Mechanical DemandNorth America Europe Asia Latin America RoW
* Forecast ** CAGR 10-16 *** CAGR 16-18
-2.8%**-3.6%***
-5.1%**
-4.4%***
-7.7%**
-6.3%***
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Global P&W Demand Posted Unusually Large Declines in 2015 and 2016
-3.0%
-2.5%
-2.0%
-1.5%
-1.0%
-0.5%
0.0%
-3,000
-2,500
-2,000
-1,500
-1,000
-500
0
Glo
bal P
&W
Dem
and
Gro
wth
Cha
nge
in G
loba
l Dem
and
(Tho
usan
d To
nnes
)
Thousand Tonnes Percent
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Capacity Is Shrinking, but Not Fast EnoughOperating rates of 88% indicate weak global market
83%
84%
85%
86%
87%
88%
89%
90%
91%
92%
93%
-2.5%
-2.0%
-1.5%
-1.0%
-0.5%
0.0%
0.5%
1.0%
Glo
bal P
&W
Ope
ratin
g R
ate
(%)
Cha
nge
in G
loba
l Cap
acity
(%)
Change in Capacity Operating Rate (%)
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0 2,000 4,000 6,000 8,000
Cmec
Newsprint
Umec
CWF
UWF
2016 Demand
The Trump Effect
Declining demand and oversupply prompting producers to export more
The USA is an obvious target Strong dollar leads to high prices Large, well‐defined and open market
(before tariffs) Mill closures
The Trump effect His presidency might result in more
trade barriers
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Current Import Tariffs into the USA
Coated sheets from China and Indonesia since 2010 CVD tariffs on China of 19% to 203% and on Indonesia of 18% ADD duties at 8% to 136% for major China producers and 20% for
Indonesia
Canadian SC producers paying 18‐20% tariff since mid‐2015
Tariffs have been revised down in the meantime
Tariffs now in place for copy paper imports from all current major offshore suppliers
13
How Much Is at Stake in the USA?
0 2,000 4,000 6,000 8,000
Newsprint
Umec
Cmec
UWF
CWF
US Demand per Grade, 2016
Production Net Imports
UWF is the largest segment for the United States, which is why trade barriers have been rising
ADD CVD
Australia Paper 222% 222%
Suzano 22% 22%
Portucel 8% 8%
April Indonesia 2% 21% 23%
APP Indonesia 17% 109% 126%
Asia Symbol (China) 84% 7% 91%
APP China 149% 7% 156%
UPM China 149% 177% 326%
Sun Paper China 149% 177% 326%
If the USA becomes more protected, who is exposed
to this market?
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US Imports of Cut Size Copy Paper from Five Tariff Target Countries
0%
5%
10%
15%
20%
25%
0
100
200
300
400
500
600
700
800
900
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 20167mo
Impo
rt Sha
re of D
eman
d
Impo
rts, Tho
usan
d Tonn
es
PortugalIndonesiaChina/HKBrazilAustraliaFive‐Country Import Share
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2016 annualized estimate from seven months of data
14
US Imports of Cut Size Copy Paper from Non‐Tariff Target Countries
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
0
20
40
60
80
100
120
140
160
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 20167mo
Impo
rt Sha
re of D
eman
d
Impo
rts, Tho
usan
d Tonn
es
All Others Israel GermanyFinland Thailand FranceImport Share
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2016 annualized estimate from seven months of data
15
16
Who Is Exposed to the USA?
66%
19%
10%
4%
Graphic Paper Exports to the USA by Region
Canada Europe Asia Latin America Other
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Umec
New
sprin
t
CWF
UWF
CWF
UWF
Cmec
Umec
17
Where Are Opportunities Rising?
Umec &Newsprint
UWF &Newsprint
Coated & UWF
US Share of Global Exports
Umec 9%Newsprint 7%Cmec 13%UWF 13%CWF 13%
Areas and segments in which the USA might export less in the future due to tighter local markets, a strong US dollar and possible capacity closures
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19
Rising Costs for End‐Users, Better Operating Conditions for Producers
0 200 400 600 800 1,000 1,200
Newsprint
Umec
Cmec
UWF
CWF
UK Demand per Grade, 2016
Production Net Imports
UK relies on imports
Suppliers to the UK affected by weak pound, which means they will do better selling somewhere else
Given currency effects and possible post‐Brexit tariffs, production costs for end‐users might rise, triggering faster demand reductions in the UK
Higher prices and tighter markets will keep remaining production in the UK safer than before
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20
Is There Any Exposure Outside the UK?
87%
4%
4%3%
Share of Exports to the UK by Region
EuropeCanadaAsiaLatin AmericaUnited StatesOther
Currency fluctuations are currently making the UK a less attractive market for exporters
The highest risk still held by the UK
0 500 1,000
Umec
Newsprint
Cmec
UWF
CWF
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21
Newsprint7
Printing & Writing27
Tissue9
Cartonboard / Other22
Containerboard33
European Paper and Board Demand101 Million Tonnes
Forecast Change2016-2018
Newsprint -5.5%
Printing & Writing -2.4%
Tissue +2.5%
Containerboard +2.4%
Cartonboard +0.8%
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22
Implications for Europe? Weak euro most likely to persist
for longer than previously thought
More exports
More imports also possible due to trade barriers in USA
Weak demand globally will keep opportunities small
It all depends on European cost competitiveness
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0
0.1
0.2
0.3
0.4
0.5
0.6
0 0.1 0.2 0.3 0.4 0.5 0.6 0.7
Eur
opea
n S
hare
of W
orld
Exp
orts
European Share of World Capacity
European Global Share of Exports and Capacity
What Is the Potential Gain in Europe?
UWF
Newsprint
CWF
Umec
Cmec
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400
450
500
550
‐
10,000
20,000
Latin America Europe Asia Oceania Africa North America
450
500
550
600
‐ 2,000 4,000 6,000 8,000
Oceania Asia Europe Latin America North America Africa
380
430
480
‐
2,000
4,000
Europe Asia North America Africa Latin America Oceania
300
350
400
450
‐
5,000
10,000
Africa Latin America Europe North America Oceania Asia
24
New
sprin
tUmec
Cmec
UWF
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European Consumption Still Declining
6,301
4,717
4,624
9,505
5,643
6,632
4,785
4,804
9,632
5,828
6,996
4,867
5,090
9,849
6,074
0 2,000 4,000 6,000 8,000 10,000 12,000
NEWSPRINT
UMEC
CMEC
UWF
CWF
2016 2017 2018
-3.9%
-4.9%
-1.0%
-4.8%
-2.1%
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Capacity Is Also Coming Down
‐1012
‐149
‐754
‐612
‐707
‐1109
‐839
‐910
‐623
‐235
NEWSPRINT UMEC CMEC UWF CWF
Percentage Change, 2016‐2018
Demand Capacity
Walsum
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European Graphics Operating Rates
0.75
0.80
0.85
0.90
0.95
1.00
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Newsprint Umec Cmec UWF CWF
Generally, operating rates are expected to keep rising thanks to capacity rationalization
28
N Performing Better Than Before
Demand better than expected thanks to grade shifting (cost driven) and greater interest in trusted news sources
Trade is stable; fewer imports (mainly Russia) offsetting lower exports to Turkey
Europeans might benefit from challenging conditions for US producers, namely strong US dollar and poor cost competitiveness
400
450
500
550
600
650
700
750
Mar‐07
Mar‐08
Mar‐09
Mar‐10
Mar‐11
Mar‐12
Mar‐13
Mar‐14
Mar‐15
Mar‐16
Newsprint 45 gsm SC Gravure 60 gsm LWC Gravure 60 gsm
0% 50% 100%
+65
50‐64
30‐49
18‐29
PEW Research
A great deal some
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29
UM Interesting Opportunities Abroad
Demand declining less
Exports trending down at the moment due to higher imports from Canada
European producers might benefit from their leading global position in this segment going forward
European market becoming slightly less concentrated as market leaders take most of the capacity out
A42%
B24%
C10%
D7%
Other17% A
30%
B27%
D13%
C8%
Other22%
2006
2016
Kvarnsveden PM8 in European Cash Cost Curve
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0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
2010 2011 2012 2013 2014 2015 2016 2017* 2018*
Global Coated Mechanical DemandNorth America Europe Asia Latin America RoW
30
CM Strong Link To Global Demand
Demand declining faster due to paper downgrading, digitization and effects of e‐commerce
Net exports down due to weak global demand (Asia and Latin America)
If global consumption declines less, the weak euro might reverse the trend seen in net exports
No further capacity rationalizations announced
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31
Are Clicks Crushing Bricks? The increase in popularity of e‐
commerce is also impacting graphics, as many more brick‐and‐mortar stores migrate online
However, in‐store buying remains key (e.g., Amazon opening brick‐and‐mortar bookstores in the USA)
Brick and mortar still accounts for over 90% of all sales
Newsprint
UWF
Umec
Cmec
CWF
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32
UWF Small, Non‐Integrated Producers at Risk
Demand dropping more than before; recent data suggest conditions are improving
Net exports down considerably due to US trade tariffs
Almost 1.5 million tonnes of new capacity in Asia will only complicate things more
Closures and/or conversions are highly probable going forward
European Uncoated Woodfree Cash Cost Curve
• Integration into pulp are key• Russia is the area with the lowest cost to produce• Small, non‐integrated producers predominantly
on the fourth quartile of the curve• Cost is only one of the elements to consider
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33
CWF Challenging Times Ahead
Demand also dropping more than before
Net exports have fallen considerably; more imports from Asia and fewer exports everywhere else
With operating rates at 85% and exports down, capacity closures and conversions highly likely
Pending decision regarding ADD
400450500550600650
‐
5,000
10,000
15,000
LatinAmerica
Asia Europe NorthAmerica
Oceania Africa
83%
84%
85%
86%
87%
88%
89%
3,000
4,000
5,000
6,000
7,000
8,000
9,000
10,000
11,000
2011 2012 2013 2014 2015 2016 2017 2018
Capacity Demand Production OR
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34
Questions?
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European Graphic Paper 5‐Year Forecastwww.risi.com/forecasts
Global Outlook for Cut Size Uncoated Freesheet Paper Marketswww.risi.com/cutsize
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